Definition of 'Isoquant Curve'
The x-axis of an isoquant curve represents the quantity of one input, and the y-axis represents the quantity of another input. The curve itself shows all the combinations of the two inputs that can produce the same level of output.
Isoquant curves are typically used to compare different production processes. For example, a manager might use an isoquant curve to compare the costs of producing a given output using two different production processes.
The slope of an isoquant curve represents the marginal rate of technical substitution (MRTS). The MRTS is the amount of one input that must be decreased in order to increase the use of another input by one unit and keep output constant.
The MRTS is a measure of the substitutability of inputs in a production process. If two inputs are perfect substitutes, then the MRTS will be constant. However, if two inputs are not perfect substitutes, then the MRTS will vary depending on the level of output.
Isoquant curves are a useful tool for understanding the relationship between inputs and outputs in a production process. They can be used to compare different production processes and to identify the most efficient way to produce a given output.
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